Mirror, mirror on the wall

Reading news stories about company results and public offerings, I often wonder if they are all written by the same writer. The titles all share an uncanny familiarity. ‘Investors tickled by Company A’s FY Results.’ ‘Company C tantalises shareholders with x kobo dividend.’ ‘Shareholders overwhelmingly laud Company E’s planned bond sales’.

The similarities do not stop there. These stories almost always have the same shareholder association representatives applauding the results and offerings, urging investors that there has never been a better time to buy the stock. The cookie cutter headlines, usual suspects’ line-up, and perpetual fan club optimism, in addition to the placement of identical stories in different dailies within the space of a few days, gives the strong impression that these testimonies are actively encouraged by the companies.

It is not my intention to contest the authority of shareholder associations as spokespersons for a cross-section of retail interests. On the contrary, I would argue that they will continue to play an important role in minority shareholder mobilisation, particularly in high-stakes corporate actions approvals, and serve as vocal advocates for dividend clientele on the shareholder register.

However, there are three missing voices that deserve the mic too. These groups either directly control sizeable blocs of stock or indirectly influence the trading decisions of others. The first group are the institutional investors, with billions in assets under management (AUM), the second group, sell-side analysts, cover the companies for clients, and the third consists of members of Market Watch, a popular forum thread on StockMarketNigeria.com.

Institutional investors

It is already abundantly clear to keen observers of the Nigerian capital market that institutional investors will squeeze retail shareowners out of the share register. The Securities and Exchange Commission’s Rule 78(c) on book-building only hastens the trend to ‘deretailisation’. In fact, it is not unthinkable that the asset and yield preferences of institutional investors will determine the capital structures of issuers going forward. The current corporate bond offering deluge is one manifestation of the pressure to tailor securities offerings to the portfolio biases of these investors. Institutional demand will determine securities supply. Bearing this in mind, positive comments by a major pension fund or mutual fund manager on a company’s capital raising plans or results are worth their weight in gold.

Although, the natural disposition of this group is to be discreet, the latest events in corporate Nigeria lend support to my expectation that activism among fund managers is not far off. When that happens, and mark my words, that day is coming, these fiduciaries will be more inclined to express their views in public. It will not be jumping the gun if the correspondents start to shop for their opinions, even if anonymously disclosed.

Three weeks ago, the head of equities research at a global firm described to me his frustration at contacting a major food company to check his facts while preparing a report. After several futile attempts, he published the note with a “sell” recommendation on the stock. More than three months later, the company is yet to get back to him on the basis for his negative outlook on its prospects. That is just one instance of a common occurrence in issuer-analyst relations where analysts are confined to creative literature review of annual reports and interim results.

Outrageous at it sounds, few Nigerian companies know the leading analysts that cover their sectors despite the fact that a “strong buy” endorsement should be their mantra. The case is no different for the capital market correspondents who hardly read analyst research or track accuracy in the analyst predictions. It is little surprise then that analysts are usually overlooked by the media when curating perceptions on company actions and performance.

Informed commentary

Since its creation in June 2008, the Market Watch thread has grown to over 12,000 posts and been viewed about 300,000 times. Like other communities of practice, new members rise in the hierarchy of roles, by enthusiastic participation and constructive contributions. Avid interrogation among members on the rationale for disclosed or intended trades and its defence opens a window of invaluable insight to readers.

Informed commentary by senior members and moderators is a strong reminder that the purpose is to make money or at the least, preserve capital and not to hype stocks. Impostors are easily ousted. The prevailing put-your-money-where-your-mouth-is morality of the forum underscores the visceral dislike for losing money and members’ obsessive monitoring of the market. Recently, a few members started sharing the daily bid-ask spreads on the trading floor allowing others to track the market pulse in minute detail.

In spite of this, it would be incorrect to label its members as opportunistic day traders. After any major corporate announcement, this unorthodox source provides actionable intelligence on the questions, concerns and hypotheses of investors with long-term preoccupations. For companies and the media, sourcing feedback on corporate plans and results from the forum should be a no-brainer.

Taken together, comments from these three sources, complementing the shareholder associations’ views, will create a richer mosaic on how the market judges companies. By triple-filtering feedback, the media diminishes its value. Anyways, since investors will always vote with their feet, the daily price movement will reveal how the market genuinely feels. Publishing non-sycophant views brings motive and perspective to the see-saw of share prices. That can only be a good thing.

The writer is the managing director of a full service investor relations firm based in Lagos.